The Superstar Effect: Pay Spread Grows Within Big Law Partnerships

Partner compensation at law firms traditionally was tight-knit, with top earners typically earning at most three to four times as much as a firm’s lowest-paid partners.

Now, top earners at some firms can operate in completely different pay zip codes from their fellow partners, as a sort of free-agency has developed for top rainmaking lawyers. Those who generate big revenues for firms are jumping ship, heading to other firms willing to give them guaranteed multi-million-dollar salaries that are up to ten-times above what other partners make. Click here for the WSJ story out in Tuesday’s paper, by Nathan Koppel and Vanessa O’Connell.

Write Koppel and O’Connell:

While there has always been a pay gap at big firms, in the past partners with ownership stakes were paid relatively similar amounts to encourage a team approach and ward off possible resentment over pay differences.

Now some top “rainmaker” partners at firms in New York, Los Angeles, Washington, D.C, and Chicago earn $10 million or more a year, compared with $640,000 for the average partner at a U.S. firm, according to legal recruiters Major, Lindsey & Africa

That’s all fine and good — and economically rational, write Koppel and O’Connell. But it’s stoking resentment among some lesser-paid partners, some of whom have seen their pay get cut to free up more cash for the superstars.

“Of course, [pay differences] can lead to tension,” said Frank Burch of DLA Piper, whose firm last year paid top partners about $6 million, roughly nine times what it paid other partners. “If you pretend that doesn’t exist you have your head in the sand.”

Other firms with wide pay spreads include Kirkland & Ellis, where top partners last year earned roughly eight times the pay of other partners, and K&L Gates, a 2,000-lawyer firm where top partners earn up to nine times as much as other partners.

Skadden, which has lost top partners in recent years to rivals including Kirkland, last year widened its compensation spread to 5-to-1, from 4-to-1 two years ago. “We decided it was more appropriate to recognize top performance,” said a Skadden senior manager.

A small number of elite firms, such as Simpson Thacher & Bartlett and Cravath, still hew to narrower compensation bands, ranging from 3-to-1 to 4-to-1, typically paying the most to those with the longest service, according to lawyers with knowledge of the firms’ finances. Barry Ostrager, a partner at Simpson Thacher, said, “Our system promotes teamwork and collegiality.”

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